Page 48: of Maritime Logistics Professional Magazine (Q1 2011)

Maritime Risk

T
o hear COO Pankaj Khanna’s
take on DryShips, its stock
price and executive decisions,
one might conclude that the master plan
is complete with fair winds and follow-
ing seas to complement the journey. At
the same time, no shipping company
has seen higher highs and lower lows
and lived to tell the tale afterwards.

And, just when you think you might
have them figured out, the firm dives
right into another market segment on
the heels of a much ballyhooed IPO for
its drillship business. As DryShips
moves inexplicably into the tanker mar-
ket, there is much to ponder about one
of NASDAQ’s most active, volatile and
interesting stocks. And, that’s because

DryShips defies definition.

LIQUIDITY, STRATEGY & LUCK

DryShips (DRYS) in 2010 endured as
much of a wild ride as anyone, weath-
ering a liquidity crunch and the specter
of collapse in the face of an enormous
(~ USD $4+ billion) CapEx burden. In

December, DryShips COO Pankaj

Khanna said that his firm has a strong
balance sheet. “We’ve turned this com-
pany around. Today, we have almost a
billion in cash and our debt is down by
$1 billion with CapEx reduced to a total
of about $1.7 billion. In terms of where
we were and where we are now, it is
like day and night. We have been able
to do that because DryShips is one of
the most liquid shipping stocks on Wall

Street.” On that score alone, he is right.

DRYS has, at times, been the 7th
most liquid stock on NASDAQ, trading
as much as $30 million in shares in a
single day. It can also be described as a
volatile listing, ranging from highs of
over $130 to its current price hovering
around $5. With general markets off as
much as 25 percent from historic highs,
there was nothing unusual about large
stock price swings for all business sec-
tors over the past two years. For ship-
ping stocks and because of the enor-
mous debt load being carried in that
sector over that same timeframe, price
swings were particularly pronounced.

Khanna insists that its liquidity has
helped them raise equity – more than $1
billion since the fourth quarter of 2008.

Over time, they’ve paid down a similar
amount of debt. He also points to cash
flow fueled by long term charters for 60
percent of its fleet, all fixed before the
financial crisis. Those charters, says

Khanna, are all performing at high
rates. “All our charters have performed
and the fleet is operating at almost 100
percent utilization.” Khanna expects
that although the charter coverage
drops to about 40 percent in 2012, the
average daily rate for this tonnage
should increase by more than 35 per-
cent. Not everyone shares that opti-
mism, however. Khanna sums up the

DRYS dry side equation by saying,
“We had a good strategy of fixing out at
the right time and this, with the increase
of equity and cancellation of 21 vessels
worth of CapEx has reduced our CapEx
expense (there) to virtually nothing.”

DryShips couldn’t always paint such
a rosy picture. Overleveraged in the
worst credit crisis in the last half centu-
ry, the company teetered on the brink of
disaster. Forfeited deposits, fees and
other capitalized asset write-offs relat-
ing to the cancellation of various hulls
weighed on the bottom line. Found to
be in violation of several loan
covenants because dry bulk carrier val-
ues plummeted during the financial
mess, DryShips has, for the time being,
righted their listing ship. Khanna

C

Case

Study

DryShips Defies Definition

Watching DryShips increase its market focus from two to three different sectors, for reasons that have investors
nervous, provides no better risk story on the global waterfront. by Joseph Keefe

DRYSHIPS

Pankaj Khanna

COO, DryShips

The Drybulk business is signifi-
cant, but the drillship business is
more so, based on the capital
employed in that business. We’re
involved in two cyclical
businesses; one related to the
crude oil cycle, the other related
to the general growth in the
economy. You have to look at
where we are in the cycle. If
investors think we have properly
judged the fundamentals, then
they will see that we are the
right vehicle.”